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NGA investments: A departure from the existing cost and demand structure assumptions

Listed author(s):
  • Tselekounis, Markos
  • Maniadakis, Dimitris
  • Varoutas, Dimitris

The two most significant factors that affect the deployment of Next Generation Access (NGA) networks are the cost of the investment and the expected demand for the new fibre-based services. The related literature is based on very simplified assumptions regarding cost and demand structures. In particular, the investment cost is assumed to be increasing and convex reflecting the fact that fibre deployment becomes marginally more expensive as it is extended to rural, less populated areas. In addition, the demand for the new fibre-based services is estimated by assuming that a certain level of NGA investment leads all consumers to equally increase their willingness to pay for such services. This article contributes to the emerging research on the investment in access infrastructures. In particular, the assumptions about cost and demand structures are modified in order to capture the access networks' underlying morphology complexity and the consumers' socioeconomic characteristics, respectively. Firstly, an empirical analysis is conducted for the 100 major municipal departments from urban to rural in Greece. Their street network data are analyzed as the basis of the NGA installation combining GIS technology and Graph Theory techniques and hence the main cost-drivers are derived. Using regression analysis a real-data-based cost function is obtained. Secondly, a novel model that takes into account socioeconomic characteristics affecting the impact of a certain level of NGA investment on consumers' willingness to pay is developed. The Pareto consumer distribution is used to reflect the greater (lower) positive impact of NGA investments on the willingness to pay of the consumers who live in more (less) populated areas. The comparison of the existing models with the ones developed in this paper shows that: (i) the cost function used in the existing models always underestimates the investment cost of the higher populated areas and overestimates the investment cost of the lower populated areas; (ii) the demand for the new fibre-based services is higher under the proposed than the existing approach; and (iii) the level of NGA investment chosen by the investor is always much higher under the proposed than the existing approach.

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Paper provided by International Telecommunications Society (ITS) in its series 19th ITS Biennial Conference, Bangkok 2012: Moving Forward with Future Technologies - Opening a Platform for All with number 72490.

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Date of creation: 2012
Handle: RePEc:zbw:itsb12:72490
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  1. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
  2. Flamm, Kenneth & Chaudhuri, Anindya, 0. "An analysis of the determinants of broadband access," Telecommunications Policy, Elsevier, vol. 31(6-7), pages 312-326, July.
  3. Oz Shy, 2011. "A Short Survey of Network Economics," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(2), pages 119-149, March.
  4. Soo, Kwok Tong, 2005. "Zipf's Law for cities: a cross-country investigation," Regional Science and Urban Economics, Elsevier, vol. 35(3), pages 239-263, May.
  5. Asim Ansari & Nicholas Economides & Avijit Ghosh, 1994. "Competitive Positioning in Markets with Nonuniform Preferences," Marketing Science, INFORMS, vol. 13(3), pages 248-273.
  6. Foros, Oystein, 2004. "Strategic investments with spillovers, vertical integration and foreclosure in the broadband access market," International Journal of Industrial Organization, Elsevier, vol. 22(1), pages 1-24, January.
  7. Raul Katz & Stephan Vaterlaus & Patrick Zenhäusern & Stephan Suter, 2010. "The impact of broadband on jobs and the German economy," Intereconomics: Review of European Economic Policy, Springer;German National Library of Economics;Centre for European Policy Studies (CEPS), vol. 45(1), pages 26-34, January.
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